Shares of Oracle (ORCL 2.02%) -- the cloud computing and legacy tech company that's emerged as a potential winner from the artificial intelligence (AI) boom -- were falling today as a note from JPMorgan Chase seemed to question growth from its Oracle Cloud Infrastructure (OCI) business through the current fiscal year.
As of 12:46 p.m. ET, Oracle stock was down 6.1%, and the broader sell-off in tech stocks today on worries about rising rates also seemed to weigh on Oracle.
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Oracle's revenue growth could disappoint
Oracle stock is seen as a winner from the AI boom as the company has seen strong growth in its cloud infrastructure division and said it's building superclusters with Nvidia chips as fast as it can. However, a note from JPMorgan is throwing some cold water on those growth expectations.
In a note, the bank said, "Our sense is that consensus assumptions for conversion from bookings to revenue may prove aggressive," adding that none of the current $4 billion AI backlog should be expected to materialize in the current fiscal year, now in its second quarter.
JPMorgan had also downgraded the stock to neutral in September on signs that cloud growth may be peaking and that its valuation at the time was fair.
What it means for Oracle stock
Oracle stock surged earlier in the year as cloud growth ramped higher and as the company touted demand for its AI computing capabilities. However, there is a significant supply bottleneck as demand is currently outstripping available capacity.
The JPMorgan note acknowledges as much, saying that demand for Oracle's AI solutions is going unfulfilled due to a shortage of GPU (graphics processing unit) clusters.
That's a good problem for Oracle to have, but it's still a problem. With Oracle's overall revenue up a modest 9% in the fiscal first quarter, the tailwind from AI has yet to have a significant impact.
Still, the stock trades at a price-to-earnings ratio below 20 now, making it cheaper than its big tech peers. If Oracle can capitalize on that backlog and the broader surge in demand for AI capabilities, the stock could pay off for patient investors.
